By continuing on this site you have agreed to cookies being placed and accessed by this website. More information and adjusting cookie settings.

Robeco uses cookies to analyze your visit to this site, to share information via social media and to personalize the site and advertisements in line with your own preferences. By clicking on agree or by continuing on this site, you agree to the above. More information and adjusting cookie settings.

AGREE

Robeco uses cookies to analyze your visit to this site, to share information via social media and to personalize the site and advertisements in line with your own preferences. By clicking on agree or by continuing on this site, you agree to the above. More information and adjusting cookie settings.

AGREE

By continuing on this site you have agreed to cookies being placed and accessed by this website. More information and adjusting cookie settings.

Duration model performs well in times of large yield changes

24-07-2014 | Research | Johan Duyvesteyn, PhD, CFA, Martin Martens, PhD, Olaf Penninga Robeco’s quantitative duration model drives the performance of quant duration solutions such as Robeco Lux-o-rente and Robeco Flex-o-rente. We monitor the performance of the model and regularly investigate in which circumstances the model performs well and which conditions are more challenging.

Speed read:
  • Duration model does well when volatility rises
  • Volatility rises in periods with larger yield changes
  • Duration model performs well in periods with larger yield changes

Duration model performs well in periods with larger yield changes
In recent research, we had already found that model performance is stronger in times of rising volatility. We also knew that rising volatility is related to periods with larger yield changes. We then further analyzed the relationship between the model’s performance and market movements.

It turned out that the model performance is stronger in periods with larger yield changes. Performance is lower when bond markets move sideways. The duration model is a market timing model and this behavior is therefore not a surprise: the model can offer most value when markets move meaningfully, either up or down.

Volatility should increase
We expect the model to continue to benefit from meaningful moves in bond markets. As the Fed is gradually reducing its extraordinary bond market operations, volatility should increase. Large yield changes are expected to occur more often, providing more opportunities for active duration management.

Johan Duyvesteyn, PhD, CFA

Senior Quantitative Researcher and Portfolio Manager
“Emerging market government bond returns can be predicted with the same factors Robeco uses for developed market government bonds”.

Martin Martens, PhD

Head Quantitative Fixed Income Research

“Also for bond markets quantitative models can beat the benchmark.”

Olaf Penninga

Olaf Penninga

Senior portfolio manager fixed income
Portfolio manager of Lux-o-rente, Flex-o-rente and Euro Government Bonds.
Share this page:

Author

Olaf Penninga
Senior portfolio manager fixed income


Author

Johan Duyvesteyn, PhD, CFA
Senior Quantitative Researcher and Portfolio Manager


Author

Martin Martens, PhD
Head Quantitative Fixed Income Research


Author

Olaf Penninga
Senior portfolio manager fixed income


Join the conversation




Newsletter

Sign up for our email newsletter to receive updates and to stay informed about upcoming webinars.